Healthways Reports Second-Quarter 2015 Financial Results

NASHVILLE, Tenn.--(BUSINESS WIRE)--Healthways (NASDAQ: HWAY) today announced financial results for the
second quarter and six months ended June 30, 2015. Highlights for the
second quarter included:

a 9.7% increase in comparable-quarter revenues to $198.1 million;

net income of $0.4 million, or $0.01 per diluted share, compared with
a net loss of $0.5 million, or $0.01 per share, for the second quarter
of 2014; and

adjusted net income per diluted share of $0.11 compared with $0.01 for
the second quarter last year, which excludes non-cash interest expense
for the second quarter of each year and expenses associated with the
Company’s previously announced CEO transition in the second quarter of
2015.

HEALTHWAYS, INC.

Financial Highlights

(In millions, except per-share data)

See pages 9-11 for a reconciliation of non-GAAP financial
measures

Three Months Ended

Six Months Ended

June 30

June 30

2015

2014

2015

2014

Revenue

$

198.1

$

180.6

$

387.9

$

357.4

Net income (loss)

0.4

(0.5

)

(2.5

)

(10.1

)

Net income (loss) per share, GAAP basis

$

0.01

1

$

(0.01

)2

$

(0.07

)2

$

(0.29

)2

Non-cash interest expense per share

0.03

1

0.03

2

0.06

2

0.06

2

CEO transition-related expenses per share

0.07

1

-

0.08

2

-

Contract dispute settlement charge per share

-

-

-

0.17

2

Adjusted net income (loss) per share3

$

0.11

1

$

0.01

1

$

0.06

1

$

(0.06

)2

1 Diluted

2 Basic

3 Figures may not add due to rounding and use
of basic or diluted shares in calculation

Alfred Lumsdaine, interim chief executive officer of Healthways,
commented, “Our second-quarter revenues and earnings reflected the
positive timing impact of recording approximately $8 million in
performance-based revenues for the quarter that were expected to be
recorded in the second half of 2015. Adjusted cash flow from operations
was $28.4 million for the second quarter. Capital expenditures were $8.7
million, down 16.2% from the second quarter last year. Our ratio of
total debt to EBITDA, as calculated under our credit agreement, improved
to 3.0 at the end of the second quarter from 3.2 at the end of the first
quarter of 2015.”

Affirms and Adds Detail to Previously Revised 2015 Financial Guidance

Based on the Company’s performance through the first half of 2015 and
its outlook for the remainder of 2015, Healthways is affirming and
adding detail to its financial guidance for the full year, which was
revised on June 18, 2015. Key elements of full-year financial guidance
include (see pages 9-11 for a reconciliation of non-GAAP financial
measures):

2015 revenues in a range of $770 million to $785 million;

2015 EBITDA margin in a range of 8.0% to 8.5%; and

2015 net income (loss) per share:

Guidance

Prior Guidance

Year Ending

Year Ending

December 31,

December 31,

2015

2015

Adjusted net income per share

$

0.07– 0.15

1

$

0.35–0.47

1

Non-cash interest expense per share

(0.12

)2

(0.12

)1

CEO transition-related expenses per share

(0.08

)2

-

Net (loss) income per share, GAAP basis

$

(0.13)–(0.05

)2

$

0.23–0.35

1

1 Diluted

2 Basic

Healthways’ financial guidance for 2015 does not include potential costs
associated with hiring a permanent CEO.

The Company expects adjusted operating cash flow for 2015 in a range of
$65 million to $75 million, compared with prior guidance in a range of
$80 million to $90 million, both of which exclude cash payments made in
the first half of 2015 for legal settlements of $14 million. The Company
continues to expect total capital expenditures in a range of $37 million
to $42 million for 2015. The Company’s ratio of total debt to EBITDA, as
calculated under its credit agreement, is expected to remain under 3.4
for the rest of 2015. The Company expects to remain in compliance with
all covenants under its credit agreement.

Conference Call

Healthways will hold a conference call to discuss this release today at
5:00 p.m. Eastern Time. Investors will have the opportunity to listen to
the conference call live over the Internet by going to www.healthways.com
and clicking Investors at least 15 minutes early to register, download
and install any necessary audio software. Presentation materials related
to the conference call may also be accessed by going to www.healthways.com
and clicking Investors. For those who cannot listen to the live
broadcast, a telephonic replay will be available for one week at
719-457-0820, code 2769710, and the replay will also be available on the
Company’s web site for the next 12 months.

Safe Harbor Provisions

This press release contains forward-looking statements, including our
guidance and financial expectations for future periods, which are based
upon current expectations, involve a number of risks and uncertainties
and are subject to the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. Those forward-looking
statements include all statements that are not historical statements of
fact and those regarding the intent, belief or expectations of the
Company, including, without limitation, all statements regarding the
Company’s future earnings and results of operations. Those
forward-looking statements are subject to the finalization of the
Company’s quarterly financial accounting procedures and may be affected
by certain risks and uncertainties, including, but not limited to:

the effectiveness of management’s strategies and decisions;

the Company’s ability to sign and implement new contracts for our
solutions;

the Company’s ability to accurately forecast the costs required to
successfully implement new contracts;

the Company’s ability to accurately forecast the costs necessary to
integrate new or acquired businesses, services (including outsourced
services) or technologies into the Company’s business;

the Company’s ability to achieve estimated annualized revenue in
backlog in the manner and within the timeframe we expect, which is
based on certain estimates regarding the implementation of our
services;

the Company’s ability to anticipate change and respond to emerging
trends in the domestic and international markets for healthcare and
the impact of the same on demand for the Company’s services;

the Company’s ability to implement its integrated data and technology
solutions platform within the required time frame and expected cost
estimates and to develop and enhance this platform and/or other
technologies to meet evolving customer and market needs;

the Company’s ability to renew and/or maintain contracts with its
customers under existing terms or restructure these contracts on terms
that would not have a material negative impact on the Company’s
results of operations;

the Company’s ability to accurately forecast the Company’s revenues,
margins, earnings and net income, as well as any potential charges
that the Company may incur as a result of changes in its business and
leadership;

the Company’s ability to accurately forecast performance and the
timing of revenue recognition under the terms of its customer
contracts ahead of data collection and reconciliation;

the Company’s ability to accurately forecast enrollment and
participation rates in services and programs offered within the
Company’s contracts;

the risks associated with deriving a significant concentration of
revenues from a limited number of customers;

the ability of the Company’s customers to provide timely and accurate
data that is essential to the operation and measurement of the
Company’s performance;

the Company’s ability to achieve the contractually required cost
savings and clinical outcomes improvements and reach mutual agreement
with customers with respect to cost savings, or to achieve such
savings and improvements within the time frames it contemplates;

the risks associated with changes in macroeconomic conditions;

the risks associated with data privacy or security breaches, computer
hacking, network penetration and other illegal intrusions of our
information systems or those of third-party vendors or other service
providers, which may result in unauthorized access by third parties to
customer, employee or Company information or patient health
information and lead to enforcement actions, fines and other
litigation against the Company;

the Company’s ability to effectively compete against other entities,
whose financial, research, staff, and marketing resources may exceed
our resources;

the Company’s ability to service its debt and remain in compliance
with its debt covenants;

the impact of litigation involving the Company and/or its subsidiaries;

the impact of future state, federal and international legislation and
regulations applicable to the Company’s business, including the
Patient Protection and Affordable Care Act, as amended by the Health
Care and Education Reconciliation Act of 2010 on the Company’s
operations and/or demand for its services; and

other risks detailed in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2014, and other filings with the
Securities and Exchange Commission.

The Company undertakes no obligation to update or revise any such
forward-looking statements.

About Healthways

Healthways is the largest independent global provider of well-being
improvement solutions. Dedicated to creating a healthier world one
person at a time, the Company uses the science of behavior change to
produce and measure positive change in well-being for our customers,
which include employers, integrated health systems, hospitals,
physicians, health plans, communities and government entities. We
provide highly specific and personalized support for each individual and
their team of experts to optimize each participant’s health and
productivity and to reduce health-related costs. Results are achieved by
addressing longitudinal health risks and care needs of everyone in a
given population. The Company has scaled its proprietary technology
infrastructure and delivery capabilities developed over 30 years and now
serves approximately 68 million people on four continents. Learn more at www.healthways.com.

HEALTHWAYS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except earnings (loss) per share data)

Three Months Ended

Six Months Ended

June 30,

June 30,

2015

2014

2015

2014

Revenues

$

198,073

$

180,613

$

387,935

$

357,391

Cost of services (exclusive of depreciation and amortization of
$9,814, $9,604, $19,341, and $18,976, respectively, included below)

159,483

146,476

320,935

294,624

Selling, general & administrative expenses

21,195

16,899

37,177

33,331

Depreciation and amortization

12,217

13,536

24,861

26,872

Legal settlement charges

—

—

—

9,363

Operating income (loss)

5,178

3,702

4,962

(6,799

)

Interest expense

4,561

4,516

9,052

8,899

Income (loss) before income taxes

617

(814

)

(4,090

)

(15,698

)

Income tax expense (benefit)

500

(297

)

(1,294

)

(5,585

)

Net income (loss)

$

117

$

(517

)

$

(2,796

)

$

(10,113

)

Less: net loss attributable to non-controlling interest

(303

)

—

(303

)

—

Net income (loss) attributable to Healthways, Inc.

$

420

$

(517

)

$

(2,493

)

$

(10,113

)

Earnings (loss) per share attributable to Healthways, Inc.:

Basic

$

0.01

$

(0.01

)

$

(0.07

)

$

(0.29

)

Diluted (1)

$

0.01

$

(0.01

)

$

(0.07

)

$

(0.29

)

Comprehensive income (loss)

$

538

$

(449

)

$

(4,052

)

$

(9,702

)

Less: comprehensive loss attributable to non-controlling interest

(298

)

—

(298

)

—

Comprehensive income (loss) attributable to Healthways, Inc.

$

836

$

(449

)

$

(3,754

)

$

(9,702

)

Weighted average common shares and equivalents:

Basic

35,734

35,285

35,664

35,219

Diluted (1)

36,881

35,285

35,664

35,219

(1)

The impact of potentially dilutive securities for the six months
ended June 30, 2015 and the three and six months ended June 30,
2014 was not considered because the effect would be anti-dilutive
in each of those periods.

to Net Income (Loss) Attributable to Healthways, Inc., GAAP
Basis and Net Income (Loss) Per

Share Attributable to Healthways, Inc., GAAP Basis

Three Months Ended

June 30, 2015

Three Months Ended

June 30, 2014

Six Months Ended

June 30, 2015

Six Months Ended

June 30, 2014

$ in

thousands

Per Share

$ in

thousands

Per Share

$ in

thousands

Per Share

$ in

thousands

Per Share

Adjusted Net Income (Loss) (1)

$

4,189

$

0.11

$

494

$

0.01

$

2,320

$

0.06

$

(2,079

)

$

(0.06

)

Net loss attributable to non-cash interest charges (2)

(1,069

)

(0.03

)

(1,011

)

(0.03

)

(2,113

)

(0.06

)

(1,997

)

(0.06

)

Net loss attributable to CEO transition-related expenses (3)

(2,700

)

(0.07

)

—

—

(2,700

)

(0.08

)

—

—

Net loss attributable to legal settlement charges (4)

—

—

—

—

—

—

(6,037

)

(0.17

)

Net Income (Loss) Attributable to Healthways, Inc., GAAP Basis (5)

$

420

$

0.01

$

(517

)

$

(0.01

)

$

(2,493

)

$

(0.07

)

$

(10,113

)

$

(0.29

)

(1)

Adjusted Net Income (Loss)and Adjusted Net Income (Loss)per share are non-GAAP financial measures. The Company
excludes net loss attributable to non-cash interest, CEO
transition-related expenses, and legal settlement charges from
these measures because of their comparability to the Company's
historical operating results. The Company believes it is useful to
investors to provide disclosures of its operating results and
guidance on the same basis as that used by management. You should
not consider Adjusted Net Income (Loss)or Adjusted Net
Income (Loss)per share in isolation or as a substitute for
net income (loss) attributable to Healthways, Inc. or net income
(loss) per share attributable to Healthways, Inc. determined in
accordance with accounting principles generally accepted in the
United States.

(2)

Net loss attributable to non-cash interest charges represents the
amortization of a debt discount. Total pre-tax charges were
$1,769,000 and $1,672,000 for the three months ended June 30, 2015
and 2014, respectively, and $3,495,000 and $3,303,000 for the six
months ended June 30, 2015 and 2014, respectively. The tax rate
applied to these non-cash interest charges was 39.55%, which
represented the combined estimated U.S. federal and state
statutory tax rate.

(3)

Net loss attributable to CEO transition-related expenses
represents the after-tax impact of expenses associated with the
termination in May 2015 of our former President and Chief
Executive Officer. Total pre-tax charges were $4,467,000 for the
three and six months ended June 30, 2015. The tax rate applied to
these CEO transition-related expenses was 39.55%, which
represented the combined estimated U.S. federal and state
statutory tax rate.

(4)

Net loss attributable to legal settlement charges represents the
after-tax impact of the Company's settlement of a contractual
dispute recorded in the first quarter of 2014. Total pre-tax
charges of $9,363,000 were recorded at a tax rate of 35.52%, which
represented the estimated annualized effective tax rate for
domestic operations at the time the charge was recorded.

Adjusted net cash flows provided by operating activities is a
non-GAAP financial measure. The Company excludes legal settlements
paid from this measure because of its comparability to the
Company's historical operating results and guidance. The Company
believes it is useful to investors to provide disclosures of its
operating results and guidance on the same basis as that used by
management. You should not consider adjusted net cash flows
provided by operating activities in isolation or as a substitute
for net cash flows provided by operating activities determined in
accordance with accounting principles generally accepted in the
United States.

(7)

Legal settlement payments include $12.8 million paid in the first
quarter of 2015 and $1.2 million paid in the second quarter of
2015. These amounts were reflected in the Company’s results of
operations for 2014.

Adjusted EPS guidance is a non-GAAP financial measure. The Company
excludes EPS (loss) guidance attributable to non-cash interest
charges from this measure because of its comparability to the
Company's historical operating results. The Company believes it is
useful to investors to provide disclosures of its operating
results and guidance on the same basis as that used by management.
You should not consider adjusted EPS guidance in isolation or as a
substitute for EPS guidance determined in accordance with
accounting principles generally accepted in the United States.

(9)

EPS (loss) guidance attributable to non-cash interest charges
consists of pre-tax charges of $7.1 million for the twelve months
ending December 31, 2015 associated with amortization of a debt
discount.

(10)

EPS (loss) guidance attributable to CEO transition-related
expenses consists of pre-tax charges of $4.5 million for the
twelve months ending December 31, 2015 associated with the
termination in May 2015 of our former President and Chief
Executive Officer and does not include potential costs, if any,
associated with hiring a new CEO.

Reconciliation of Adjusted EBITDA

to Net Income (Loss) Including Non-Controlling Interest, GAAP
Basis

(In thousands)

Three Months

Ended

Three Months

Ended

June 30, 2015

June 30, 2014

Growth

Adjusted EBITDA (11)

$

21,862

$

17,238

27

%

CEO transition-related expenses (12)

(4,467

)

—

Depreciation and amortization

(12,217

)

(13,536

)

Interest expense

(4,561

)

(4,516

)

Income tax (expense) benefit

(500

)

297

Net income (loss) including non-controlling interest, GAAP basis

$

117

$

(517

)

(11)

Adjusted EBITDA is a non-GAAP financial measure. The Company
excludes CEO transition-related expenses from this measure because
of its comparability to the Company's historical operating
results. The Company believes it is useful to investors to provide
disclosures of its operating results and guidance on the same
basis as that used by management. You should not consider adjusted
EBITDA in isolation or as a substitute for net income (loss)
including non-controlling interest determined in accordance with
accounting principles generally accepted in the United States.

(12)

CEO transition-related expenses consists of pre-tax charges of
$4.5 million for the three months ended June 30, 2015 associated
with the termination in May 2015 of our former President and Chief
Executive Officer.